An E-Commerce Quandry

By Karrie Wichtman

Underlying all e-commerce is the question: Where does the transaction take place? The location of the transaction is significant because it helps determine the legal authority with jurisdiction over the transaction. The location of the transaction—i.e., the jurisdiction—is especially relevant with tribal e-commerce as tribes search for ways to engage in e-commerce without sacrificing sovereignty.

Courts and lawyers have battled over the location of a transaction for well over 200 years—online e-commerce has cast the question in a new light. Over the past 20 years courts have created different methods to shoehorn e-commerce transactions into antiquated legal maxims. However, the courts cannot keep pace with the speed of technology and the question over where the transaction occurs remains problematic.

Tribal e-commerce suffered a significant setback with a recent federal court decision in California. For the past two years, the Iipay Nation of Santa Ysabel has battled with California and the United States over Desert Rose Bingo—Iipay’s server-based online bingo game. While Iipay’s computer servers are located on Iipay’s reservation, the bingo game is offered to off-reservation California residents that are over 18.

California alleged that, under the Indian Gaming Regulatory Act, Iipay’s game was Class III and was offered to off-reservation players, which violated both Iiapay’s compact and California law. The United States argued that the game violated the Unlawful Internet Gambling Enforcement Act (UIGEA).

The United States District Court sided with the United States and enjoined Iipay finding that the off-reservation gaming activity was illegal in California and that illegality was consequently a violation of UIGEA.

By finding that the players’ off-reservation conduct determined the location of the gaming activity despite the on-reservation location of the gaming servers, the court struck a blow to tribes interested in online gaming, but more significantly, may have struck a blow to tribal e-commerce.

Many tribal e-commerce models are structured to ensure the last act in an e-commerce transaction occurs on Indian land. Tribes house their computer hardware and personnel on-reservation, which directs consumers towards on-reservation activity. While consumers may be on-or-off reservation, the e-commerce transaction is consummated by the tribe’s on-reservation acceptance completing the last step of the transaction.

The Iipay decision is significant in that it is the first direct analysis and holding contemplating how off-reservation players’ conduct is sufficient to place the location of the transaction—i.e., gambling—at the player’s location regardless of the on-reservation computer infrastructure. The decision poses a very significant setback for tribes interested in online gaming. But more importantly, while the decision is in the gaming context, there is a direct comparison between the player’s off-reservation gaming activity and an e-commerce customer’s off-reservation activity.

Unless the court’s decision is ultimately overturned, tribes engaged in e-commerce will have to stave off efforts to use the court’s decision as controlling or persuasive authority to convince other courts that off-reservation conduct is sufficient to locate an e-commerce transaction within a state’s jurisdiction. This attack on tribal e-commerce will be especially problematic in state courts where tribal sovereignty issues are uncommon and tribes are disrespected.

Tribes active in e-commerce had begun to sway the courts to respect on-reservation activity and allow a sovereign immunity defense for attacks against tribes’ e-commerce activities. The Iipay decision is a setback to the tribes’ collective effort to ensure that the location of the transaction occurs on-reservation within the tribes’ sovereign jurisdiction.

Tribes engaged in non-gaming e-commerce activities should be able to distinguish their businesses from the online bingo activity here, because gambling requires the convergence of chance, consideration and prize—much different from an offer, consideration and acceptance under contract law, where the acceptance occurs on a tribe’s reservation. ♦